Today, I’m joined by Caroline Pearson who is Senior Vice President of Policy & Strategy at Avalere where she oversees the firm’s content generation across consulting services, research products, and public visibility.

She’s here today to discuss the results of a recent analysis that Avalere performed which looked at the impacted changes to the 340B program on hospitals.

Caroline, welcome to the program.

Caroline Pearson: Thanks so much for having me.

Mike: So, for those who may not be familiar with Avalere, tell us a bit about your firm and what you do

Caroline: Sure! So, we are a healthcare consulting firm. We’re based in Washington DC. And we work with stakeholders across the healthcare industry including pharmaceutical manufacturers, health plans providers, these groups, et cetera, helping them understand how changes in the landscape and in the policy environment will affect their business.

Mike: Excellent! Thank you. And as I mentioned in the opening of the show, your firm conducted an analysis that looked at the impact of changes to the 340B program. And that’s certainly been a hot issue so we’re glad to have you on the show to talk about it.

And we have talked about this on the show in the past, particularly when the OPPS rule came out. But for listeners who are less familiar with the topic, could you just set up the discussion by describing the 340B program and the changes that came about as part of the OPPS’ final rule for 2018.

Caroline: Sure! So, 340B program is a program that provides discounted prescription drugs to a certain set of hospitals that serve low income patient populations. And those hospitals can effectively purchase their drugs at this discounted rate. But they are typically reimbursed by insurers at the standard rate. And so the spread or the difference between the price at which they acquire the drug and the reimbursement rate from the insurers is money that goes into the hospitals’ pockets and funds all of their operations and patient care.

And this program really started out as a way to help provide some extra revenue to hospitals that were really providing significant amounts of charity care. It’s grown and evolved significantly over time. And that’s certainly been a topic of focus.

And most recently, the Medicare program said, “Well, we’re a public program. And so we actually think we should be benefiting from those discounted drug prices as well.” So Medicare decided that they were going to reduce the amount that they paid hospitals for 340B drugs down to something much closer to the price at which the hospitals are actually acquiring those drugs.

Mike: So, let’s talk about your analysis specifically. What were you looking for?

Caroline: So, this change to the Medicare program is going to be a significant cut to a subset of hospitals that actually buy a lot of 340B drugs. I should mention that those cuts are actually going to be offset by increases in other Medicare reimbursements for other services.

So, in fact, in net, many hospitals will actually benefit from this change, but not all. And so we wanted to look at how this reimbursement cut is really going to affect hospitals, what the distribution of that cut looks like, and how it varies by state.

And so, what we found is that states like California, North Carolina, and New York are states that will be most affected. They’ve got large numbers of hospitals with high volumes of 340B drug utilization. And they’re going to see some significant reductions as a result of those drug payment cuts.

But in general, most hospitals will have a relatively limited financial impact. We actually find that for 94% of hospitals, they’re going to have either less than a 10% reduction in their payments and 62% of hospitals will see less than a 5% reduction just as a result of those drug cuts. But we do have about 6% of hospitals that are set to experience more than a 10% reduction in their Medicare Part B revenue as a result of these changes. And those are the hospitals who need to take a close look at all of the puts and takes and how it’s going to affect their overall financial outlook

Mike: Right! So, looking at the changes across the country, what do you think the net results will be?

Caroline: Well, I think it’s difficult to tell because this particular analysis didn’t really look at the impact of the payment increases. And that’s something that we’re working on now.

And so, as I mentioned, I think for most hospitals, this is going to have a relatively budget neutral effect. And in fact, many hospitals will actually see increases in payments.

But we do need to pay special attention to the hospitals that are going to experience very significant cut reductions as a result of these payment changes for drugs. And for those hospitals that may have thin margins and may depend on 340B revenue, this is a serious financial impact for them.

It’s always difficult to tell how that all nets out with all of the other sources of funding that hospitals are getting, but it’s definitely a big change to their finances and something we need to pay close attention to.

Mike: If someone wanted to get a look at your analysis, where can they go?

Caroline: Sure! So, they can go to our website which is Avalere.com. And it’s on our Insights page.

Mike: That’s great! Caroline Pearson, thank you so much for joining us today on the Hospital Finance Podcast.

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